This Week in ETFs: October 30th Edition

It’s been an interesting week in the world of ETFs: U.S. equity markets ended the week on a sour note with most benchmarks down about 2%. Here are the ETF Database staff picks of the week’s most important and interesting stories from around the Web:

This article discusses how equity ETFs that invest in companies operating in the commodities industry have performed much better than some exchange-traded commodity products. The author motes that “the futures-based S&P GSCI Commodity Index, for instance, delivered a spot return through September of 33 percent. But once you account for contango, the spot return is just 4.7 percent.” It also highlights two of the more popular funds in the segment, HAP and CRBQ, and discusses the main differences between the two ETFs. A must read for anyone interested in commodity investing and considering the use of ETFs to do so.

We highlight the major factors that move the BRIC markets of Brazil, Russia, India, and China and discuss the three funds that invest in these markets: the SPDR S&P BRIC 40 (BIK), Claymore/BNY Mellon BRIC ETF (EEB), and iShares MSCI BRIC Index Fund (BKF). The funds each have their own unique allocations to the BRIC economies and different sector weightings within these countries. We also highlight several options that are available for investors who would like to get access to the BRIC markets in a leveraged or inverse fashion, as well as a few indirect investment options.

Copper prices have experienced a huge run up in the past few months, and many investors are wondering if this trend is sustainable. A good proxy for the copper market is Chile, which is a major exporter of the metal and is dependent on worldwide demand to fuel its domestic growth. When an investor compares the charts of copper as represented by iPath’s DJ-AIG Copper Total Return Sub-Index ETN (JJC) with iShares MSCI Chile Fund (ECH), one can see that Chile has also experienced a run up, suggesting that copper is moving upwards on fundamentals rather than pure speculation.

The author of this article highlights three ideas that investors can use when they seek to reshape their portfolio. The first is what the author calls ‘reverse benchmarking’ in which an investor buys ETFs in a desired mix or allocation and uses a fictional portfolio of active funds and individual stocks in order to see just how hard it is to beat the market. The second idea is to overweight the laggard sectors instead of trying to chase rising markets higher and higher. Lastly, the author suggests that investors periodically rebalance their portfolios in order to make sure that one particular fund or stock is not taking up too much of their portfolio’s holdings.

Discussed in this article is an interesting (and complicated) strategy for investors looking to profit off of the “crack trade” which involves changing proportion of a barrel of oil that goes to gasoline and heating oil depending on the time of the year. Due to this different breakdown, the price of gasoline can head higher due to the lower level of supply and vice versa for heating oil. By looking at this breakdown, investors can profit by investing in “equal lots of the ProShares UltraShort DJ-UBS Crude Oil ETF (SCO), the United States Gasoline Fund (UGA) and the United States Heating Oil Fund (UHN) (which) effectively puts an investor short two units of crude oil and long one unit each of gasoline and heating oil.” This is best for investors who are “anticipating an expansion in refiner profits—in other words, fatter cracks,” since crude oil costs lag increases in the prices of refined products.

That’s it for This Week in ETFs: happy reading. Have a great Halloween!

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